Flexibility, Hierarchy, Markets

The conclusion that organizations need to become more strategically flexible as a response to increasing environmental dynamism and uncertainty has been an important feature of recent contingency theories of organization design. In this literature organizations have been analysed from the perspective of the development of networks of organizations concentrating on their core competencies and contracting among themselves on a stable long-term basis. This model of inter-firm relationships provides an alternative mode of organizational structuring to that arising from vertical integration, which, by contrast, is seen as fostering strategic inflexibility. In the literature on corporate restructuring and changes in ownership form arising from the markets and hierarchies perspective, we see a similar emphasis on the dysfunctional consequences of large-scale bureaucratic organization. Changes in ownership form are seen as a major means of providing more effective managerial control. In this paper we argue that linking the literature on flexibility emanating from contingency theories of organizational design and the markets and hierarchies perspective provides important new insights into current and emerging forms of organization.     

Technology,Geography, and Trade

We develop a Ricardian trade model that incorporates realistic geographic features into general equilibrium. It delivers simple structural equations for bilateral trade with parameters relating to absolute advantage, to comparative advantage (promoting trade), and to geographic barriers (resisting it). We estimate the parameters with data on bilateral trade in manufactures, prices, and geography from 19 OECD countries in 1990. We use the model to explore various issues such as the gains from trade, the role of trade in spreading the benefits of new technology, and the effects of tariff reduction.     

Comments on globalization, interdisciplinary research, myopia and parochialism, government, convergence, and culture

Globalization presents social scientists with a wide variety of issues and challenges that cut across disciplinary boundaries. Disciplinary boundaries encourage specialization and advances in understanding aspects of social behavior, but specialization also creates barriers to more comprehensive understanding of social behavior such as globalization. Successful interdisciplinary efforts entail gains from trade across disciplinary specializations. The papers in this volume help outline an agenda for interdisciplinary investigation of globalization to knock down disciplinary boundaries and encourage gains from trade that further our understanding of globalization. But much work remains before we see real fruits from such efforts.     

Trust,Emotion, Sex,Politics, and Science: Surveying the Risk-Assessment Battlefield

Risk management has become increasingly politicized and contentious. Polarized views, controversy, and conflict have become pervasive. Research has begun to provide a new perspective on this problem by demonstrating the complexity of the concept risk and the inadequacies of the traditional view of risk assessment as a purely scientific enterprise. This paper argues that danger is real, but risk is socially constructed. Risk assessment is inherently subjective and represents a blending of science and judgment with important psychological, social, cultural, and political factors. In addition, our social and democratic institutions, remarkable as they are in many respects, breed distrust in the risk arena. Whoever controls the definition of risk controls the rational solution to the problem at hand. If risk is defined one way, then one option will rise to the top as the most cost-effective or the safest or the best. If it is defined another way, perhaps incorporating qualitative characteristics and other contextual factors, one will likely get a different ordering of action solutions. Defining risk is thus an exercise in power. Scientific literacy and public education are important, but they are not central to risk controversies. The public is not irrational. Their judgments about risk are influenced by emotion and affect in a way that is both simple and sophisticated. The same holds true for scientists. Public views are also influenced by worldviews, ideologies, and values; so are scientists' views, particularly when they are working at the limits of their expertise. The limitations of risk science, the importance and difficulty of maintaining trust, and the complex, sociopolitical nature of risk point to the need for a new approach—one that focuses upon introducing more public participation into both risk assessment and risk decision making in order to make the decision process more democratic, improve the relevance and quality of technical analysis, and increase the legitimacy and public acceptance of the resulting decisions.     

PRICING,PRODUCTION, AND PERSISTENCE

Though built with increasingly precise microfoundations, modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks, as recently stressed by Chari, Kehoe, and McGrattan (2000). We trace this lack of persistence to a standard view of the cyclical behavior of real marginal cost built into current sticky price macro models. Using a fully articulated general equilibrium model, we develop an alternative perspective on real marginal cost that leads to substantial persistence. Based on an important role for materials input, variable capacity utilization, and labor adjustment on the extensive margin, this alternative view also makes the sticky price model display volatility and comovement of factor inputs and factor prices more closely in line with conventional wisdom about business cycles and various empirical studies of the dynamic effects of monetary shocks. (JEL: E31 E32)     

Bacon, Boole, the EPA, and Scientific Standards

The scientific standards of the Environmental Protection Agency (EPA) include the use of retrospective meta-analysis. This analysis entails a use of the theory of probability that is only a simulation and cannot accurately measure the confidence that should be placed in the results. The uncertainty necessary for probability is, in a retrospective study, simulated rather than real. There are three logical forms for establishing a proposition. In the logic of the syllogism, a proposition is established by deduction from assumed propositions. In the logic of the physical sciences, a proposition is established by its ability to predict the outcomes of future experiments. In the logic of the courtroom, a proposition is established by its ability to explain past events. The logic of the courtroom operates under the handicap of working with nonrepeatable events. It is more subject to the preferences of the judge than the logic of the physical sciences or that of the syllogism. Because the logic of the courtroom is less reliable than either the logic of the physical sciences or that of the syllogism, it is the logic of last resort, i.e., it is used only when the other two are not applicable. Under the EPA scientific standards, the logic of the courtroom is accepted for establishing propositions about the physical world. As the logic of the courtroom is less reliable than that of the physical sciences, this practice increases the likelihood of errors.     

CONCEPTS,THEORY, AND TECHNIQUES

The beta distribution is becoming more widely used in business applications and in economic model-building. A simple way to estimate the parameters of the univariate distribution and the general multivariate distribution would be useful but there appears to be no simple way of accomplishing this task. For example, the method of maximum likelihood does not yield tractable results. The method of moments presented in this paper is a practical way to obtain parameter estimates for the beta distribution. Explicit estimators are derived for the univariate and bivariate case and estimators are then inferred for the n-variate case. Empirical tests suggest that the method of moments may be used to establish useful estimates for these parameters. Also, estimates obtained by the method of moments may be used to develop bounds on the parameters so that computational techniques can be utilized with other estimation methods possessing more desirable properties.     

Culture, Cosmopolitanism, and Risk Management

Most cultural approaches to risk management deal with the connections between the forms of social relations within groups and the risk concerns of those groups. According to these theories, a certain limited set of different relational forms (usually three, four, or five) lead to specific, different and conflicting, risk concerns. In contrast to these theories, cosmopolitanism is an approach to culture that focuses, not on forms of sociality, but on changes among forms—expansions and contractions in the inclusivity of forms and movement by persons from one form of sociality to another. Relative to other cultural theories, cosmopolitanism thus is much more concerned with the solution of risk management problems than with their origins. Cosmopolitanism can be thought of as a cultural continuum, with cosmopolitanism at one end and pluralism at the other. Cosmopolitan persons are more open to cultural change—and thus the solution of risk management problems. In this article, we outline our new theory of cosmopolitanism, describe a method for measuring it and present an experimental study that tests some implications of the theory. Results from the study support the theory by showing that, compared to pluralistic respondents, cosmopolitan respondents are more inclusive in their risk management judgments—that is, they express equal concern for a local and a national issue, whereas the pluralistic respondents express greater concern in the local case. We discuss the risk management implications of a cosmopolitan approach to culture.     

Trust, confidence, procedural fairness, outcome fairness, moral conviction, and the acceptance of GM field experiments

In 2005, Swiss citizens endorsed a moratorium on gene technology, resulting in the prohibition of the commercial cultivation of genetically modified crops and the growth of genetically modified animals until 2013. However, scientific research was not affected by this moratorium, and in 2008, GMO field experiments were conducted that allowed us to examine the factors that influence their acceptance by the public. In this study, trust and confidence items were analyzed using principal component analysis. The analysis revealed the following three factors: "economy/health and environment" (value similarity based trust), "trust and honesty of industry and scientists" (value similarity based trust), and "competence" (confidence). The results of a regression analysis showed that all the three factors significantly influenced the acceptance of GM field experiments. Furthermore, risk communication scholars have suggested that fairness also plays an important role in the acceptance of environmental hazards. We, therefore, included measures for outcome fairness and procedural fairness in our model. However, the impact of fairness may be moderated by moral conviction. That is, fairness may be significant for people for whom GMO is not an important issue, but not for people for whom GMO is an important issue. The regression analysis showed that, in addition to the trust and confidence factors, moral conviction, outcome fairness, and procedural fairness were significant predictors. The results suggest that the influence of procedural fairness is even stronger for persons having high moral convictions compared with persons having low moral convictions.     

Ownership concentration,contestability, family firms,and capital structure

This study analyses the distribution of power among the several blockholders of a firm and the identity of those blockholders as a determinant of firm leverage. Using a sample of 694 firms from 12 Western European countries, our results support a negative relationship between ownership concentration in the hands of the main blockholder and firm leverage. Moreover, we detect that the presence of a second and third large shareholder (beyond the first blockholder) has a significant positive effect on the leverage ratio. In addition, the results show that contestability in family firms plays a more relevant role. Finally, we show that family firms do have significant impact on firm leverage level, and this impact varies depending on the legal framework and institutional environment. In our main sample the results show family firms negatively affect market leverage, supporting the theory that family firms are more averse to an increase in the debt level due to the risk of bankruptcy and financial distress as a result of having an under-diversified portfolio. In contrast, the opposite effect is found in the sample that excludes the United Kingdom. This last result cannot be explained by agency theory, given that family businesses are those that suffer less from Type I agency problems. This result suggests either some difficulty in financing their investments by issuing new equity or the need to use debt as a signal of the quality of its investments. Our results prove to be stable against a battery of robustness tests.     

Effectiveness, accountability, and efficiency

Management of health care is compromised by its singular reliance on billing information--i.e., a claims trail tells little of what providers think. It relates to neither prevention of disease nor reduction of unnecessary health care costs. Billing information is not the substrate to be used in the pursuit of appropriateness, effectiveness, and value. To improve medical management of health care, a protected, but accessible clinical database is needed.     

Complexity,simplicity, simplexity

“In the midst of order, there is chaos; but in the midst of chaos, there is order”, John Gribbin wrote in his book Deep Simplicity (p. 76). In this dialectical spirit, we discuss the generative tension between complexity and simplicity in the theory and practice of management and organization. Complexity theory suggests that the relationship between complex environments and complex organizations advanced by the well-known Ashby’s law, may be reconsidered: only simple organization provides enough space for individual agency to match environmental turbulence in the form of complex organizational responses. We suggest that complex organizing may be paradoxically facilitated by a simple infrastructure, and that the theory of organizations may be viewed as resulting from the dialectical interplay between simplicity and complexity.     

GMM,GEL, Serial Correlation,and Asymptotic Bias

For stationary time series models with serial correlation, we consider generalized method of moments (GMM) estimators that use heteroskedasticity and autocorrelation consistent (HAC) positive definite weight matrices and generalized empirical likelihood (GEL) estimators based on smoothed moment conditions. Following the analysis of Newey and Smith (2004) for independent observations, we derive second order asymptotic biases of these estimators. The inspection of bias expressions reveals that the use of smoothed GEL, in contrast to GMM, removes the bias component associated with the correlation between the moment function and its derivative, while the bias component associated with third moments depends on the employed kernel function. We also analyze the case of no serial correlation, and find that the seemingly unnecessary smoothing and HAC estimation can reduce the bias for some of the estimators.     

Firms,Destinations, and Aggregate Fluctuations

This paper uses a data base covering the universe of French firms for the period 1990–2007 to provide a forensic account of the role of individual firms in generating aggregate fluctuations. We set up a simple multisector model of heterogeneous firms selling to multiple markets to motivate a theoretically founded decomposition of firms' annual sales growth rate into different components. We find that the firm‐specific component contributes substantially to aggregate sales volatility, mattering about as much as the components capturing shocks that are common across firms within a sector or country. We then decompose the firm‐specific component to provide evidence on two mechanisms that generate aggregate fluctuations from microeconomic shocks highlighted in the recent literature: (i) when the firm size distribution is fat‐tailed, idiosyncratic shocks to large firms directly contribute to aggregate fluctuations, and (ii) aggregate fluctuations can arise from idiosyncratic shocks due to input–output linkages across the economy. Firm linkages are approximately three times as important as the direct effect of firm shocks in driving aggregate fluctuations.     

Leaders, followers, and time

In order to consider leadership from a temporal perspective, we examine extant leadership research that refers to temporal variables in its theorizing and/or empirical testing. We consider rhythmic patterns manifested in leader and follower behavior and employ entrainment, polychronicity, pace/speed, punctuality, and temporal depth as categorization concepts for the analysis. Further, we propose general theoretical statements about temporal dimensions and their prospective roles in relationships and processes related to leadership.     

CREDIT,WAGES, AND BANKRUPTCY LAWS

We analyze how bankruptcy laws affect the general equilibrium interactions between credit and wages. Soft laws reduce the frequency of liquidations and thus ex post inefficiencies, but they worsen credit rationing ex ante. This hinders firm creation and thus depresses labor demand. Rich agents who need few outside funds can invest even if creditor rights are weak. Hence, they favor soft laws that exclude poorer agents from the credit market and reduce the competition for labor. Such laws can generate greater utilitarian welfare than under perfect contract enforcement: By barring access to credit to some agents, soft laws lower wages, which increases the pledgeable income of richer agents and decreases the liquidation rates they must commit to. When they induce strong credit rationing, however, soft laws are Pareto‐dominated by tougher laws combined with subsidies to entrepreneurs. (JEL: D82, G33, K22)     

Equity, Efficiency, Uncertainty, and the Mitigation of Global Climate Change

Policies to mitigate potential damages from global climate change impose costs on the current generation to provide benefits to future generations. This article examines how comparisons among three stylized policies-business-as-usual, mitigation of climate change, and compensation for climate damages-depend on social preferences with respect to risk and intertemporal equity. Also examined is the opportunity-cost criterion, which asserts that mitigation should not be chosen if its net present value is smaller than that of business-as-usual. Analysis reveals that the discount factor used to evaluate whether mitigation satisfies this criterion depends on preferences regarding risk and intertemporal inequality of consumption, and on the risk of the compensation policy. Risk aversion favors mitigation over business-as-usual. If society is neutral to inequality, risk aversion disfavors compensation, but if society is inequality averse, the effect of risk aversion on preferences between compensation and business-as-usual is ambiguous. Inequality aversion tends to favor business-as-usual over both alternative policies provided that, roughly speaking, the anticipated future improvements in welfare exceed the anticipated climate damages.     

Prices,Markups, and Trade Reform

This paper examines how prices, markups, and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multi‐product firms. This approach does not require assumptions on the market structure or demand curves faced by firms, nor assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity‐based productivity, and then compute marginal costs by dividing observed prices by the estimated markups. We use India's trade liberalization episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalization lowers factory‐gate prices and that output tariff declines have the expected pro‐competitive effects. However, the price declines are small relative to the declines in marginal costs, which fall predominantly because of the input tariff liberalization. The reason for this incomplete cost pass‐through to prices is that firms offset their reductions in marginal costs by raising markups. Our results demonstrate substantial heterogeneity and variability in markups across firms and time and suggest that producers benefited relative to consumers, at least immediately after the reforms.     

State Capacity,Conflict, and Development

The absence of state capacities to raise revenue and to support markets is a key factor in explaining the persistence of weak states. This paper reports on an ongoing project to investigate the incentive to invest in such capacities. The paper sets out a simple analytical structure in which state capacities are modeled as forward looking investments by government. The approach highlights some determinants of state building including the risk of external or internal conflict, the degree of political instability, and dependence on natural resources. Throughout, we link these state capacity investments to patterns of development and growth.